The Wisdom of CrowdsThe Wisdom of Crowds

GROUP’S GUESS:GROUP’S GUESS:

119711971197 1197

ACTUAL WEIGHT:ACTUAL WEIGHT:

1198119811981198

The Wisdom ofThe Wisdom of CrowdsThe Wisdom of The Wisdom of Crowds

Groups can be remarkably smart, and are often Groups can be remarkably smart, and are often smarter than the smartest person in themsmarter than the smartest person in themsmarter than the smartest person in them.smarter than the smartest person in them.

Tapping into the collective wisdom of yourTapping into the collective wisdom of yourTapping into the collective wisdom of your Tapping into the collective wisdom of your organization can radically improve your ability organization can radically improve your ability to solve problems make forecasts and thinkto solve problems make forecasts and thinkto solve problems, make forecasts and think to solve problems, make forecasts and think strategically.strategically.

Jack Treynor’s jellybean Jack Treynor’s jellybean experiment:experiment:experiment:experiment:

Group’s guess:Group’s guess: 850850

A t l b f j ll bA t l b f j ll b 871871Actual number of jellybeans:Actual number of jellybeans: 871871

Number of people who did Number of people who did better than the group:better than the group: 1 out of 561 out of 56g pg p

Who Wants to Be a Millionaire?Who Wants to Be a Millionaire?Who Wants to Be a Millionaire?Who Wants to Be a Millionaire?

Experts:Experts: 65% correct

Audience: Audience: 91% correct91% correct

RacetrackRacetrackRacetrackRacetrack

1970 season at Aqueduct1970 season at Aqueduct1970 season at Aqueduct 1970 season at Aqueduct and Belmont:and Belmont: 312 races312 races

Predicted chance of Predicted chance of favorite winning: favorite winning: 33%33%

Actual winning percentage:Actual winning percentage: 34%34%g p gg p g

Predicted chance of 2Predicted chance of 2ndnd--pl.pl.Predicted chance of 2Predicted chance of 2 pl. pl. horse winning:horse winning: 22%22%

Actual winning percentage:Actual winning percentage: 21%21%Actual winning percentage:Actual winning percentage: 21%21%

Predicted chance of 3Predicted chance of 3rdrd--plplPredicted chance of 3Predicted chance of 3 pl. pl. horse winning:horse winning: 16%16%

Actual winning percentage:Actual winning percentage: 16%16%Actual winning percentage:Actual winning percentage: 16%16%

P di t d h f 4P di t d h f 4thth llPredicted chance of 4Predicted chance of 4thth--pl. pl. horse winning:horse winning: 12%12%

%%Actual winning percentage:Actual winning percentage: 12%12%

Iowa Electronic MarketIowa Electronic Market

19881988--2004:2004:M th 600 i f G ll llM th 600 i f G ll llMore than 600 comparisons of Gallup poll More than 600 comparisons of Gallup poll

results with prices in the I.E.M.results with prices in the I.E.M.

I.E.M. more accurate:I.E.M. more accurate:75% of the time75% of the time

2004 Election2004 Election2004 Election2004 Election

ElectionElection--eve forecast error: eve forecast error: 1.2%1.2%

States called correctly: States called correctly: 48 out of 5048 out of 50

Senate races (Tradesports):Senate races (Tradesports): 33 out of 3433 out of 34Senate races (Tradesports): Senate races (Tradesports): 33 out of 3433 out of 34

El tiEl ti f t 1988f t 1988 20042004ElectionElection--eve forecast error, 1988eve forecast error, 1988--2004:2004:

1 3%1.3%

Markets Within CorporationsMarkets Within Corporations

HewlettHewlett--Packard’s internal market toPackard’s internal market toHewlettHewlett Packard s internal market to Packard s internal market to forecast printer salesforecast printer sales

Small number of participants: 25Small number of participants: 25--3030

Trading only took place during lunch hoursTrading only took place during lunch hours

Small financial incentivesSmall financial incentives

Over three years, its sales forecasts wereOver three years, its sales forecasts weret th HP’ i t lt th HP’ i t lmore accurate than HP’s internalmore accurate than HP’s internal

forecasting method:forecasting method: 75% of the time

e Lilly internal market to predict drugs’e Lilly internal market to predict drugs’e.Lilly internal market to predict drugs e.Lilly internal market to predict drugs chance of making it through clinical trials:chance of making it through clinical trials:

Market distinguished almost immediatelyMarket distinguished almost immediatelybetween viable candidates and failuresbetween viable candidates and failures

Google prediction marketGoogle prediction market

1000+ participants1000+ participants

Strategic and tactical questionsStrategic and tactical questions

200+ events in 43 different subject areas200+ events in 43 different subject areas

Hierarchies are good at getting things done.Hierarchies are good at getting things done.g g g gg g g g

But they often make it difficult for information to But they often make it difficult for information to yyget from where it is to where it needs to be.get from where it is to where it needs to be.

Tapping into the wisdom of crowds allows you to Tapping into the wisdom of crowds allows you to get around the challenges that hierarchies create.get around the challenges that hierarchies create.

DiversityDiversity

Diversity is the key to wise crowdsDiversity is the key to wise crowdsDiversity is the key to wise crowds.Diversity is the key to wise crowds.

The more diverse a group the better theThe more diverse a group the better theThe more diverse a group, the better the The more diverse a group, the better the decisions it will make.decisions it will make.

Diversity that matters is cognitive diversityDiversity that matters is cognitive diversityCognitive diversity = diversity of perspectivesCognitive diversity = diversity of perspectivesCognitive diversity = diversity of perspectivesCognitive diversity = diversity of perspectivesand heuristicsand heuristics

Perspective:Perspective:

How a person represents a problemHow a person represents a problemHow a person represents a problemHow a person represents a problem

Heuristic:Heuristic:

A tool a person uses to solve a problemA tool a person uses to solve a problemA tool a person uses to solve a problemA tool a person uses to solve a problem

Page and Hong experiment:

Two groups of computer agents solving a Two groups of computer agents solving a challenging problemchallenging problem

Group One:Group One: 12 best problem12 best problem--solverssolversGroup Two:Group Two: 12 random problem12 random problem--solverssolvers

Random group outperforms allRandom group outperforms all--brilliant brilliant g p pg p pgroup:group: 87% of the time87% of the time

People can know less and still add People can know less and still add value if what they know is differentvalue if what they know is differentvalue, if what they know is different.value, if what they know is different.

James March experimentJames March experiment

Adding less experienced people to Adding less experienced people to group of more experienced group of more experienced makes group makes group smartersmarter

Diverse groups are more likely to: Diverse groups are more likely to: E lE l dd E l itE l itExplore Explore and and ExploitExploit

Investment ClubsInvestment Clubs 1279 Clubs1279 Clubs

Clubs with men Clubs with men andand women better women better than samethan same--gender clubsgender clubs

When group’s task commitment is When group’s task commitment is high:high:

1% i i i l di it1% i i i l di it1% increase in social diversity now 1% increase in social diversity now produces 12% increase in performanceproduces 12% increase in performance

With homogeneous groups, the more With homogeneous groups, the more they talk, the dumber they become.they talk, the dumber they become.y , yy , y

Why?Why?Why?Why?

GroupthinkGroupthink

Group polarizationGroup polarizationGroup polarizationGroup polarization

Leaders who knew it allLeaders who knew it all

Solomon Asch experiment

Problem: Which of the three lines is the same length as the line on the card you are lookinglength as the line on the card you are looking at?

70% of people changed their minds at least once70% of people changed their minds at least once

33% of people went with the group a majority of the time

Fewer than 10% of people went with the groupFewer than 10% of people went with the group

IndependenceIndependenceIndependenceIndependence

1 person on street corner:1 person on street corner:1 person on street corner:1 person on street corner:5% stop5% stop

5 people on street corner:5 people on street corner:45% stop45% stop45% stop45% stop

10 l t t10 l t t10 people on street corner:10 people on street corner:80% stop80% stop

The ProblemThe ProblemThe ProblemThe Problem

Human beings like to imitate.Human beings like to imitate.

ffImitation often works.Imitation often works.

Imitation keeps us safe.Imitation keeps us safe.

The Key to the Wisdom of Crowds

A group is smartest when the people in it are as individual as possible.

Encourage disagreement and dissentEncourage disagreement and dissent

It’s possible for people to be too connectedIt’s possible for people to be too connected

Decisions reached simultaneously (or close to it) Decisions reached simultaneously (or close to it) are better than those reached sequentiallyare better than those reached sequentially

Leaders need to limit their own influenceLeaders need to limit their own influence

220 yards220 yards